U.S., Microsoft defend deal

WilliamL. Watts

WASHINGTON (CBS.MW) -- The Justice Department urged a federal judge Wednesday to accept a proposed settlement of the Microsoft antitrust case, arguing that the deal offers consumers stronger protections than could have been obtained by further litigation.

Critics tried to persuade U.S. District Court Judge Colleen Kollar-Kotelly to reject the deal, contending it doesn't do enough to address the company's antitrust violations or protect software industry competition. Under the Tunney Act, the judge must determine whether the settlement is in the "public interest."

Justice Department special trial counsel Philip Beck told the judge that had the case returned to trial, the government would probably not have persuaded the court to impose provisions as far-reaching as those in the settlement.

A federal appeals court ruling put a high burden of proof on the government to show that Microsoft's tactics prevented rival products, such as Netscape's Navigator browser, from posing a platform threat to Windows, he said.

Microsoft
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attorney John Warden told Kollar-Kotelly that the company was confident it would have faced less severe restrictions had the case returned to trial last fall, but opted to settle in order to end years of draining legal wrangling.

"Litigation is not good for the soul, for the soul of an individual or a company," Warden said.

Last summer, a federal appeals court upheld a lower court ruling that Microsoft engaged in anticompetitive acts that amounted to illegal maintenance of its Windows operating system monopoly. Windows runs more than 90 percent of the world's personal computers.

The appellate court, however, threw out two lesser charges and tossed an order to split the software giant in two, sending the case back to district court for a new round of remedy proceedings.

Before the case got that far, Microsoft and the Justice Department, supervised by a court-approved mediator, reached a deal on a proposed settlement. Eventually, nine of the 18 states that joined the federal suit agreed to go along, but nine others have refused.

The settlement is designed to restrict Microsoft's licensing practices to prevent it from using Windows' dominance of the operating system market to pressure computer makers and others into favoring other Microsoft software products. It also includes requirements for Microsoft to disclose key technical information to rival software makers to ensure they can design products that run as smoothly on Windows as Microsoft products.

Kotelly set aside nearly an hour for critics of the deal to offer their objections. Donald Flexner, an attorney representing regional Bell phone company SBC Communications
SBC, +0.07%
said the settlement does nothing to prevent Microsoft from abusing the monopoly power of Windows in order to sideline competition in areas such as instant messaging and media player software.

Beck said SBC was misreading court rulings in the case, arguing that efforts to prove Microsoft had leveraged its Windows monopoly into other areas had fallen short.

Former federal judge and conservative antitrust scholar Robert Bork argued on behalf of ProComp, a trade group that includes Microsoft competitors Oracle
ORCL, +0.46%
and Sun Microsystems
SUNW, -22.36%
He urged Kollar-Kotelly to give no deference to the Justice Department on the appropriateness of the remedies and charged that the settlement would have done nothing to prevent Microsoft's subsequent illegal conduct had it been in place in 1995.

Beck said he was "flabbergasted" by Bork's argument, asserting that the settlement's licensing restrictions and flexibility provisions would have prevented Microsoft from engaging in the exclusionary practices and other measures that the courts found allowed it to undercut the Netscape Navigator browser.

The Tunney Act requires Kollar-Kotelly to review what role corporate lobbying may have played in settlement efforts. Critics of the deal have argued that Microsoft has failed to adequately disclose contacts with legislators.

Kollar-Kotelly asked several questions regarding Microsoft's disclosures. Warden said Microsoft was obligated only to reveal contacts with executive branch officials. Warden said that in any case there were no contacts on details of the settlement talks during negotiations. Beck said the government hadn't researched Microsoft's obligations.

Meanwhile, the nine holdout states and Microsoft are set to return to trial next week, also before Kollar-Kotelly. The nonsettling states are seeking more far-reaching remedies, including a provision that would require Microsoft to sell a version of Windows that allows end-users or computer makers to fully remove middleware products, such as Microsoft's media player or Internet Explorer.

Microsoft has asked for a two-week delay to the start of the remedy phase of the trial, saying it needs more time to examine changes to the holdout states' remedy proposals made earlier this week.

Beck, Warden and Michael Schwartz, an attorney representing the settling states, each urged Kollar-Kotelly to make a prompt decision on the Tunney Act review. Beck said there would be no reason to delay a Tunney decision until after the judge rules on the nonsettling states' case.

Kollar-Kotelly indicated a decision probably isn't immediately forthcoming. "This is a very important and complex case which deserves and will receive my full attention," she said.

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